Hang Seng Index forecast: Dropped 1.5% but bullish trend intact with USD weakness as a tailwind

• Pullback, not a trend break: The Hang Seng slipped 1.5% this week on weak China retail sales but remains up 3.7% YTD and continues to outperform major US indices, signalling resilience rather than a structural reversal.
• USD weakness is the key tailwind: A strengthening offshore yuan (CNH) and a breakdown in USD/CNH point to sustained US dollar weakness, which has historically fed directly into upside momentum for Hong Kong and broader Asia-Pacific equities.
• Technical setup favours a rebound: The index is holding its 20-day moving average with bullish RSI signals; above 26,870 opens the path toward 27,175 and 27,500, while a break below 26,250 would delay the bullish case with a deeper correction.

Since the start of the week, Hong Kong’s Hang Seng Index has staged a decline of 1.5%, negatively impacted by localized macro headwinds.

Mixed tier-one economic data from China was released on Monday, January 19. Industrial production rose by 5.2% y/y in December 2025, accelerating from a 4.8% rise in November and surpassing expectations of 5%; its fastest increase since September.

In contrast, retail sales rose modestly by only 0.9% year-over-year (y/y) in December, following a 1.3% increase in November and coming in below expectations of a 1.2% increase. It marked the weakest growth since December 2022, despite one of the top economic priorities being pushed by top Chinese policymakers to increase consumer demand.

Overall, despite the current week-to-date loss of 1.5% as of Thursday, 22 January 22, the Hang Seng Index recorded a gain of 3.7%, and still managed to beat three of the major US benchmark stock indices; Dow Jones Industrial Average (+2.1%), S&P 500 (+0.4%), and Nasdaq 100 (+0.3%) except for US small-cap Russell 2000 that ranked the second spot with a rally of 8.7% (see Fig 1.)

The offshore Chinese yuan (CNH) has appreciated significantly against the US dollar since the start of the new year. The USD/CNH broke below a former key medium-term support of 6.9710 (the 26 September 2024 swing low) and traded to a 32-month low of 6.9595 at the time of writing, supported by the continuation of the 2-year yield premium shrinkage of the US Treasuries over Chinese government bonds (see Fig. 2).

These observations suggest that the USD/CNH is likely to have transitioned into a potential major downtrend phase, which may suggest further US dollar weakness ahead towards 6.8960 per USD in the first step.

Based on intermarket analysis, since 2 December 2025, the inverse of USD/CNH (CNH per USD) has moved in a significant direct correlation with several Asia Pacific stock markets (Hang Seng Index, Hang Seng China Enterprises Index, Shanghai Stock Exchange Composite Index, MSCI Asia Pacific ex Japan), and MSCI Emerging Markets ex China (see Fig. 3).

The recent rise in the offshore yuan (CNH) has led to similar upside movements seen in the stock markets. Therefore, a further strengthening of the CNH against the US dollar is likely to create a positive feedback loop back into the Hang Seng Index.

Let's now decipher the short-term (1 to 3 days) trajectory of the Hang Seng Index from a technical analysis perspective.

The recent 3.4% decline (high to low) from 16 January 2026 to 20 January 2026 of the Hong Kong 33 CFD index (a proxy of the Hang Seng Index futures) is likely to reach an inflection zone to kickstart a potential bullish reversal and potentially transform into an impulsive up move sequence.

The price actions of the Hong Kong 33 CFD index have managed to hold at its 20-day moving average, which confluences with the minor ascending channel support from the 16 December 2025 low of 25,087.

In addition, the hourly RSI momentum indicator has staged a bullish breakout, which suggests a revival of short-term bullish momentum.

Watch the 26,330/26,250 short-term pivotal support, and a clearance above 26,870 may set sight on the next intermediate resistance at 27,175 before the major resistance comes in at 27,500 (the long-term secular descending trendline from the 29 January 2018 all-time high) (see Fig. 4).

On the other hand, failure to hold at 26,250 and an hourly close below it jeopardizes the bullish tone for a minor corrective decline towards the next intermediate support at 26,045/5,970 (also the 50-day moving average) (see Fig. 5).